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VanTheMan

Negative Equity

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My wife and I were first time buyers in July 2007. We bought in Belfast and paid £250,000. The house is now worth c.£125,000. We owe the bank c.£200,000. We need to move closer to our original hometown but the negative equity on our existing home is proving to be a stumbling block. Debt forgiveness isn't an option - we've exhausted this avenue with the bank. They won't transfer our existing mortgage to a new house. We don't want to rent in our hometown as we need stability. We could possibly afford to buy something up to £150k and retain/rent out our original house but suspect the negative equity on our current house will be deemed negatively by a new lender. Has anyone been in a similar scenario? Any advice?

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I'd rent in the hometown. No point in spending more money. Your mortgage on the Belfast house is going to go up once you let it anyway.

Edited by yadayada

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No bank will give you a buy to let mortgage of £200k on a house worth £125k. 75/80% would normally be the most any would. Would get the value of the house in Belfast assessed because some areas have definitely improved. I would guess that it you had a good credit history with your existing bank they would be the best position to decide if you could afford the extra debt (more than 300k of debt - would normally need a income of over £75k a year). I don't know if this applies to you.

From this article there seems to be 2 banks (nationwide and lloyds) that might allow you to bring the negative equity from one property to another - you still need to provide a deposit for new house, interest rates higher than "standard rates" and I don't know if it applies to NI. Might be an option

http://citywire.co.uk/money/in-negative-equity-you-can-still-move-your-mortgage/a689575

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You are 75 K in the red, you have paid down 25K in 6 years, so on that basis paying down another 100K (to get back up to zero) will take 24 years. And thats assuming interest rates never go up.

I think it would be worth talking to an insolvency professional to go through all the possible options. You don't have a housing problem, you have a money problem.

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We don't know anything about their finances - they have made the standard payments only, not necessarily through any inability to pay.

In that situation, I would definitely not buy any more houses, I would rent out the Belfast house and direct any saved money towards reducing the mortgage as much as and as quickly as possible.

No one knows what inflation or interest rates will be in another year or two, never mind ten, so the safest thing would be to reduce debt, I believe.

Also, you really do not know what will happen next. The loans of Anglo irish bank and permanent tsb were bought at vastly reduced prices by foreign banks last year. These banks are now offering distressed mortgage holders in Dublin the chance of escape from debt if they sell their houses at far less than they owe. Hence the flurry of auctions in recent months, with the pledge that no house belonged to anyone who'd been evicted.

Edited by yadayada

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We don't know anything about their finances - they have made the standard payments only, not necessarily through any inability to pay.

In that situation, I would definitely not buy any more houses, I would rent out the Belfast house and direct any saved money towards reducing the mortgage as much as and as quickly as possible.

No one knows what inflation or interest rates will be in another year or two, never mind ten, so the safest thing would be to reduce debt, I believe.

Also, you really do not know what will happen next. The loans of Anglo irish bank and permanent tsb were bought at vastly reduced prices by foreign banks last year. These banks are now offering distressed mortgage holders in Dublin the chance of escape from debt if they sell their houses at far less than they owe. Hence the flurry of auctions in recent months, with the pledge that no house belonged to anyone who'd been evicted.

Correct - we have made standard payments only. Whilst we have lost out on the house, fortunately our salaries have improved significantly since 2007. We are not struggling to make ends meet now (we were in 2007 & 2008). Our mortgage payment is c.20% of our net income. We have no other debts.

Do you know if there are any examples of First Trust agreeing to debt forgiveness in residential mortgages? We have no emotional attachment to the house therefore if they agreed to a 'consensual sale' we would get it on the market in the morning. When I met with them c.12 months ago, this was certainly not an option. I'd be reluctant to plough all our savings into the mortgage in case debt forgiveness becomes a policy in the coming years. Stuck in limbo.

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Wow. I'd like to know where these houses are and what silly banker thought it was a good idea to lend him all that money. We all end up paying for this stupidity

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Correct - we have made standard payments only. Whilst we have lost out on the house, fortunately our salaries have improved significantly since 2007. We are not struggling to make ends meet now (we were in 2007 & 2008). Our mortgage payment is c.20% of our net income. We have no other debts.

Do you know if there are any examples of First Trust agreeing to debt forgiveness in residential mortgages? We have no emotional attachment to the house therefore if they agreed to a 'consensual sale' we would get it on the market in the morning. When I met with them c.12 months ago, this was certainly not an option. I'd be reluctant to plough all our savings into the mortgage in case debt forgiveness becomes a policy in the coming years. Stuck in limbo.

Anglo irish bank was nationalised and closed. Many of their loans were sold at big discounts to foreign banks. This means a profit can still be made by these banks when selling the houses at well below the money owed.

First trust is part of aib, who tried and failed to sell it. Aib are likely to need recapitalisation in July, which will be another dilemma for the irish government. It might be worth hanging on till then when the picture may get clearer. Could the first trust loan book be sold? Probably by keeping out of arrears any deal may not apply to you.

I've been told deals such as these have only been offered to those who'd given up paying months ago - anyone who's faithfully paid every month is a cash cow for the new lender. Moral hazard indeed.

Just my thoughts

Edited by yadayada

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If you want to go the debt forgiveness, you need to play the bankruptcy game with the bank, they would probably rather not make a total loss on the negative equity. But if they think you will never go bankrupt they will not fogive the debt, you need to give them a reason. If you can agree some profit for them rather than bankruptcy they might accept a reasonable figure.

You need to be prepared to go for it and lay it on the table to the bank, then you have something to negotiate with. And you need to stick with it, they may only back down once they realise you are serious.

Other than that I would also recommend renting, stability is not a good reason, you are ruining your current stability by moving out of choice. Stop being a rental snob! Being chucked out is rare, LL's prefer a long term tennant, especially in a decent house. Even if you do get chucked out, renting is easy in easy out, and still cheaper for a decent house.

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